It’s becoming part of the holiday season ritual. With another Congressional cycle coming to a close, a deeply divided Congress rushes to put a spending plan in place replete with a smattering of unfinished business. Maybe this is the year that Congress finally passes legislation to allow credit unions and banks to provide banking services to marijuana related businesses and their employees in States where marijuana is legal. Common sense says it should, but experience says it won’t.
If my cynicism proves correct, Congress’ continued dithering puts even more pressure and responsibility on credit unions. The reality is that with 37 states in which marijuana is legal in some form, the question is no longer if your credit union is involved in marijuana banking, but how extensive is the involvement. The practical effect of Congress’ inaction is to make the business more expensive for smaller businesses that need capital and credit; and a compliance minefield for all but the largest and most sophisticated institutions that have the resources necessary to implement the proper framework for getting involved in an industry that remains patently illegal as a matter of federal law.
For Exhibit A of how cannabis is being integrated into the banking system, we have to look no further than the news that so-called cashless ATM transactions are no longer available for marijuana dispensaries. According to Bloomberg, this point-of-sale system allowed cannabis buyers to use a bank card instead of cash. The technology made marijuana purchases look like ATM withdraws coming from a location other than a dispensary. Needless to say, VISA put network participants on notice that it wanted the practice to stop.
All this leaves financial institutions to pick up the slack the best they can. For example, let’s say your credit union has decided that it doesn’t have the member demand or expertise to open up its accounts to marijuana businesses. It should still be asking the right questions to ensure that its members’ deposits are coming from non-cannabis sources. For instance, when it opens business accounts, is the business asked if it works with marijuana related businesses? And let’s say you open a joint account for a couple; would you be willing to give that couple a mortgage if you found out that one of them is employed in the marijuana industry? Neither of these questions have right or wrong answers. They are both a classic example of the type of issues that should ultimately be discussed by your Board so you have policies in place that are consistent with your credit union’s risk profile. But if you don’t ask these questions, you won’t even know that these issues need to be addressed in the first place.
Incidentally, whenever I research this issue, I always come across posts- typically from vendors – minimizing the legal issues involved with marijuana banking and stressing that according to FinCEN’s own statistics, there are already 553 banks and over 200 credit unions that provide marijuana services in accordance with FinCEN’s famous 2014 marijuana guidance. It’s what I call the “what’s the big deal” argument.
It’s a big deal because no matter how you slice it, there are complications that go along with providing services to an industry that remains unequivocally illegal under federal law. In fact, while the NCUA has been generally supportive of credit union efforts in this space, it has taken a tough stand against credit unions it feels are going about things the wrong way. For example, it issued a cease and desist order against Live Life Federal Credit Union in part because the credit unions’ BSA system was not sophisticated enough to appropriately comply with its obligations to monitor BSA compliance. Further, when the Fourth Corner Credit Union in Colorado was denied access to the Federal Reserve Bank of Kansas, the NCUA also denied the credit union’s participation in the Share Insurance Fund.
Where does all this leave us? With an ongoing need to protect your credit union the best you can by asking the right questions, drawing up appropriate policies, and hiring adequate staff to ensure that you have an appropriate legal framework in one of the most gray areas of the law we have seen.
Henry Meier is the former General Counsel of the New York Credit Union Association, where he authored the popular New York State of Mind blog. He now provides legal advice to credit unions on a broad range of legal, regulatory and legislative issues. He can be reached at (518) 223-5126 or via email at henrymeieresq@outlook.com.